Should 


/  I 


Railroad  Rates 
Be  Raised? 


AN 

AFFIRMATIVE 

ANSWER 


ADDRESS  OF 

WILLIAM  A.  HAYES 


-AT- 


y  1 


ANNUAL  BANQUET  OF  MILWAUKEE  TRAFFIC  CLUB 
JANUARY  20.  1914 


■s 


■A 


^'^'^ 


Extract  From 

Address  at  Annual  Banquet 
of  Milwaukee  Traffic  Club 

Milwaukee,  January  20,  191 4. 


Considering  American  railroads  as  a  system, 
traflfic  rates  are  too  low,  and  ought  to  be  substan- 
tially increased.  Such  an  increase  would  prove 
advantageous  to  the  general  public  as  well  as  to  the 
companies.  I  am  not  here  to  ask  you  to  accept  my 
conclusion,  but  to  point  out  certain  facts  for  the 
consideration  of  intelligent  men,  and  to  suggest  in- 
quiry as  to  further  facts,  which,  taken  in  connection 
with  those  to  be  mentioned,  compel  the  conclusion 
indicated. 

To  come  to  any  sound  conclusion  in  respect  of 
the  sufficiency  or  the  insufficiency  of  existing  rates, 
we  must  take  into  account  the  larger  facts  touching 
American  railroads  as  a  whole.  Governors,  sena- 
tors, legislatures,  courts,  judges  and  commissions 
have  each  and  all  failed  to  deal  effectively  and  just- 
ly with  railway  problems  because  a  consideration  of 
the  subject  in  hand  was  limited  either  to  a  particu- 
lar railroad  or  to  a  group  of  railroads  without  refer- 
ence to  its  or  to  their  relation  to  the  other  rail- 
roads of  the  country.  There  can  be  no  fair  solution 
of  the  railway  problems  unless  we  become  familiar 
with  these  larger  facts  and  comprehend  the  rail- 
roads of  the  country  in  their  entirety. 
C Therefore,  as  preliminary  to  more  specific  re- 

1 


^%  •.«« 


marks  upon  the  subject  of  rates,  I  invite  you  briefly 
to  consider  a  few  facts  which  show  that  the  rail- 
roads of  the  country  constitute  the  greatest  system 
of  transportation  on  the  face  of  the  earth,  and  the 
greatest  piece  of  constructive  work  for  the  serving 
of  the  people,  accomplished  by  man  since  the  begin- 
ning of  recorded  history. 

There  are  in  the  country,  at  this  time,  two  hun- 
dred fifty  thousand  miles  of  line  and  three  hundred 
eighty  thousand  miles  of  track.  There  is  enough 
line  to  go  around  the  earth  ten  times  at  the  equator 
and  more  than  fifteen  times  in  the  latitude  of  Mil- 
waukee. There  is  enough  track  to  go  around  the 
earth  nearly  twenty-five  times  in  the  latitude  of  Mil- 
waukee; enough  to  lay  nearly  one  hundred  twenty 
parallel  tracks  from  New  York  to  San  Francisco, 
and  all  of  this  has  been  constructed  within  the  life 
time  of  men  still  living.  All  of  this  trackage  is  of 
standard  gauge,  and  every  mile  is  a  connected  part 
of  the  whole;  it  penetrates  every  part  of  the  three 
million  square  miles  of  our  public  domain,  and  over 
it  the  products  of  the  farm,  the  forest  and  the  mine 
may  be,  and  daily  are  shipped  to  the  cities  and  the 
seaports  of  the  land,  and  over  it  in  turn  are  daily 
shipped,  for  distribution,  the  finished  products  of 
every  foreign  country  and  of  every  section  of  our 
own. 

This  great  system  is  equipped  with  nearly  sixty- 
five  thousand  locomotives,  more  than  fifty  thousand 
passenger  cars  and  more  than  two  million  three 
hundred  thousand  freight  cars.  The  locomotives,  if 
placed  in  a  continuous  line,  would  extend  almost 
from  Chicago  to  New  York.  The  passenger  cars,  if 
placed  in  a  continuous  line,  would  extend  nearly 

2 


from  Chicago  to  Washington,  and  their  capacity  is 
sufficient  to  house  at  one  time  all  the  people  of  the 
state  of  Wisconsin,  and  still  leave  enough  room  to 
shelter  from  the  chilling  winds  of  winter  all  of  the 
people  of  Montana  and  Nevada.  There  are  enough 
freight  cars  to  make  a  continuous  line  around  the 
earth  in  the  latitude  of  Milwaukee;  to  fill  nearly 
five  parallel  tracks  from  New  York  to  San  Fran- 
cisco, and  their  carrying  capacity  is  sufficient  to 
hold  nearly  three  thousand  pounds  of  freight  for 
every  man,  woman  and  child  in  the  United  States. 

This  great  plant  is  manned  by  about  fifty  thou- 
sand conductors;  nearly  sixty-five  thousand  engi- 
neers ;  a  like  number  of  firemen,  and  in  all  by  nearly 
one  million  seven  hundred  thousand  men.  Its  ac- 
tivities never  cease.  Every  month,  every  day,  every 
hour,  every  second,  in  darkness  and  in  daylight,  in 
the  face  of  fire  and  flood  and  storm  and  tornado; 
in  the  extreme  cold  of  winter  and  the  extreme  heat 
of  summer  it  is  operated  for  the  convenience  and 
the  comfort  of  the  people.  The  products  of  the 
farm,  the  forest,  the  factory  and  the  mine ;  the 
wheat  of  the  Dakotas ;  the  corn  of  Iowa  and  Kansas; 
the  fruits  of  California  and  Florida;  the  cotton  of 
Mississippi  and  Texas,  and  the  coal  of  Pennsylvania 
and  West  Virginia  derive  their  value  very  largely 
from  its  existence  and  its  operation.  The  freight 
carried  annually,  at  the  lowest  rates  in  the  world, 
is  equivalent  to  more  than  twenty-five  tons  conveyed 
one  hundred  miles  for  every  man,  woman  and  child 
in  the  nation,  and  the  yearly  passenger  traffic  is 
equivalent  to  the  taking  of  the  entire  population  of 
Wisconsin  around  the  earth  in  this  latitude,  or  to 
the  travel  of  a  party  of  more  than  thirty  persons. 


going  at  the  rate  of  a  mile  a  miuiite,  night  and  day, 
every  second  of  the  time  since  Christ  was  born. 

Owned  and  operated  by  many  companies,  the 
various  lines  have,  by  reason  of  matters  which  time 
will  not  permit  me  to  discuss,  come  to  constitute  one 
great  system,  and  the  process  of  nationalization,  as 
it  may  be  called,  is  now  going  on  more  rapidly  than 
at  any  previous  time.  It  may  be  said  that  the  rail- 
roads constitute  one  great  system  of  commercial 
highways,  the  activities  of  which  are  in  an  intricate 
and  delicate  wav  most  vitallv  connected  with  the 
economic,  the  industrial  and  the  social  life  of  the 
nation.  Like  the  arteries  and  nerves  of  the  human 
body  they  penetrate  and  vitalize  every  part,  and  the 
agricultural,  the  manufacturing,  the  mining,  the 
commercial,  the  financial  and  the  social  activities  of 
the  people,  as  they  exist  today,  would  be  incon- 
ceivable without  them.  Considered  in  their  en- 
tirety, our  railroads  are  the  most  wholesome  eco- 
nomic force  in  existence.  Thev  are  the  balance 
wheel,  as  it  were,  of  proiluction,  distribution  and 
consumption,  and  next  to  agriculture  contribute 
most  to  the  prosperity  and  the  comforts  of  the  peo- 
ple. Whatever,  therefore,  affects  their  management 
and  their  finances,  affects  their  service,  and  through 
their  finances  and  their  service  affect  everv  other 
Industry  and  all  persons  throughout  the  country. 

The  Interstate  Commerce  Commission  and  com- 
missions in  the  several  states  have  for  some  years 
past  exercised  large  authority  in  the  matter  of  rates, 
while  at  the  same  time  determining  to  a  consider- 
able degree  both  the  cliaracter  and  the  extent  of  the 
service,  thus  reducing  income  and  increasing  ex- 
pense. 


Wages  and  the  cost  of  materials,  supplies  and 
taxes  have  been  largely  increased,  but  net  earnings 
have  not  been  increased  accordingly,  and  as  a  result 
the  financial  condition  of  the  railroads  has  been 
most  seriously  affected.  There  are,  therefore,  many 
good  reasons  why  a  substantial  increase  in  traflSc 
rates  would  prove  beneficial  generally,  but  I  shall 
limit  myself  to  a  very  brief  discussion  of  three. 

FIRST.  The  laborer  is  worthy  of  his  hire.  So 
is  the  man  possessed  of  capital,  or,  as  it  may  be 
termed,  crystallized  labor  entitled  to  a  fair  return 
for  itsi  use,  and  the  return  upon  capital  now  invested 
in  the  railroads  of  the  country  is  too  low.  It  is 
lower  than  the  return  received  by  many  of  the  large 
life  insurance  companies,  whose  securities  are  of 
the  strictly  investment  class,  and  very  much  lower 
than  the  return  on  capital  invested  in  banking, 
manufacturing  and  other  industries  generally.  I 
am  well  aware  that  some  will  question  the  accuracy 
of  this  statement,  and  reply  by  saying  that,  while 
the  interest  and  the  dividend  rates  upon  the  bonds 
and  the  stocks  of  the  railroads  may  be  low,  the 
capital  as  shown  by  the  bonds  and  stocks  is  exces- 
sive, and  that  the  rate  upon  the  actual  investment  is 
higher  than  it  ought  to  be.  Indeed,  it  is  generally 
assumed  that  the  railroads  of  the  country  are  gross- 
ly over-capitalized,  and  it  is  widely  charged  that 
the  people  are  paying  vast  sums  in  the  form  of 
interest  and  dividends  upon  such  over-capitaliza- 
tion. It  is  not  so.  The  charge  is  contrary  to  the 
facts  in  so  far  as  the  facts  have  been  ascertained. 
It  has  been  made  again  and  again  by  certain  maga- 
zine writers  and  by  some  public  men,  but  I  care  not 
by  whom  made,  it  can  be  substantiated  by  no  one. 


Whenever,  wherever  and  by  whomsoever  made,  it  is 
made  either  in  ignorance  of  the  fact,  or  in  dis- 
regard of  the  fact. 

The  best  available  information  at  present  ob- 
tainable is  to  the  effect  that  the  American  railroads 
as  a  ichole  are  not  over-capitalized.  It  is  not  un- 
likely that  an  impartial  valuation  of  their  proper- 
ties, as  they  exist  today,  by  competent  and  impar- 
tial men  would  find  such  values  to  exceed  by  from 
ten  to  twenty  per  cent  the  net  face  value  of  all  of 
their  bonds  and  stocks.  Let  us  examine  a  few  facts. 
A  physical  valuation  of  railway  property  has  been 
made  by  public  commissions  in  five  states,  namely : 
Michigan,  Wisconsin,  Minnesota,  South  Dakota  and 
Washington.  The  value  of  the  railway  property  in 
these  states,  as  shown  at  the  time  by  their  stocks 
and  bonds,  was  approximately  |1,210, 000,000;  yet 
the  Commissions  found  the  value  to  aggre- 
gate a  little  more  tlian  |1,211,000,000,  and  the 
actual  value  was  fixed  by  other  competent  and  dis- 
interested authorities  at  considerably  more  than  the 
values  found  by  the  Commissions. 

Again,  we  have  in  the  country  about  one-six- 
teenth of  the  world's  land  area,  and  one-sixteenth 
of  the  world's  population,  but  we  have  forty  per 
cent  of  the  world's  railway  mileage,  nearly  all  built 
without  any  guarantee  of  profits  upon  the  invest- 
ment, other  than  faith  in  the  future  of  the  country. 
Yet  the  average  capitalization  per  mile  of  railway 
in  this  country  is  considerably  less  than  the  average 
capitalization  per  mile  of  the  railways  of  the  world. 
It  is  probable  that  rights  of  way  here  have  cost  less 
per  mile  than  in  many  of  the  other  countries,  but 
nowhere  else  in  all  the  world  has  the  cost  of  labor, 

6 


the  chief  item  in  the  cost  of  railway  construction, 
been  so  high  as  in  our  own  country.  Another  con- 
sideration is  this :  The  average  capitalization  per 
mile  is  less  than  the  average  capitalization  per  mile 
of  railroads  now  being  constructed  in  Japan,  India 
and  elsewhere;  yet  we  are  informed  that  labor  in 
India  is  cheaper  than  in  any  other  country  of  the 
world. 

If  we  turn  to  the  matter  of  taxation,  we  arrive 
at  the  same  conclusion.  The  taxes  of  the  railroads 
have  been  Increased  more  than  |50,000,000  a  year 
within  the  last  seven  years,  and  they  are  now  pay- 
ing a  tax  of  about  |130,000,000  annually.  If  the 
value  is  in  the  railroads,  why  not  the  rate  to  pay  a 
fair  return  thereon?  If  the  value  is  not  there,  and 
the  tax  is,  then  it  would  seem  that  we  have  at  least 
a  few  public  officials  who  are  violating  their  oaths 
of  office  and  committing  grand  larceny  in  the  name 
of  the  state.  Is  it  fair  treatment  that  one  set  of 
public  officials  should  increase  the  taxes  upon  the 
theory  that  the  capital  indicated  is  actually  i/n- 
vested,  and  that  another  sat  of  public  officials  should 
refuse  to  permit  the  railroads  to  charge  an  adequate 
rate  upon  the  theory  that  the  capital  is  largely 
water?  For  my  own  part,  I  am  satisfied  that  the 
capital  is  invested  and  that  the  rates  ought  to  be 
raised.  I  hope  that  the  physical  valuation  to  be 
undertaken  by  the  Government  will  be  promptly 
carried  out,  for,  if  the  work  should  be  thoroughly 
and  fairly  done,  the  result  will  remove  a  very  erron- 
eous idea  from  the  public  mind. 

Let  us  approach  the  question  of  investment  from 
another  point.  Let  us  consider  for  a  moment  the 
cost  of  what  may  be  termed  a  table  of  accessories. 

7 


There  are  aloug  the  railroads  of  the  country  about 
325,000,000  fence  posts  and  2,500,000  miles  of  wire, 
and  the  fences  have  cost  approximately  |125,- 
000,000.  There  are  cattle  guards,  plankings,  wing 
fences  and  warning  signs  from  400,000  to  500,000 
in  number,  and  these  have  cost  almost  |50,000,000. 
There  are  upon  the  ground  about  1,140,000,000  ties, 
which  have  cost  from  |G00,000,000  to  |700,000,000. 
There  are  more  than  5,000,000,000  spikes  and  fast- 
enings; there  are  enough  of  these  to  put  at  least 
three  into  the  hands  of  every  human  being  on  the 
face  of  the  earth ;  enough  to  give  an  armful  of  fifty 
to  every  man,  woman  and  child  of  all  the  100,- 
000,000  people  in  the  United  States,  and  these  little 
things  have  cost  nearly  f60,000,000.  There  are 
more  than  55,000,000  tons  of  rail,  which  have  cost 
approximately  ^1,600,000,000.  There  are  water 
tanks  and  watering  plants  costing  nearly  |100,000,- 
000.  There  are  roundhouses,  small  repair  shops  and 
the  like,  costing  upward  of  |500,000,000.  There  are 
80,000  passenger  depots  and  more  than  100,000 
depots  in  all,  which,  according  to  the  best  informa- 
tion at  hand,  have  cost  approximately  |1, 750, 000,- 
000.  There  are  about  65,000  locomotives  varying  in 
cost  from  |1 0,000  to  |50,000  apiece,  and  having  an 
aggregate  value  of  nearly  |1 ,200,000,000.  There  are 
50,000  passenger  cars  that  have  cost  upward  of 
$600,000,000,  and  there  are  more  than  2,300,000 
freight  cars,  which  have  cost  approximately  |2,000,- 
000,000.  We  have  in  these  accessories  an  invest- 
ment of  from  18,000,000,000  to  $9,000,000,000,  and 
at  a  most  conservative  estimate  such  investment 
amounts  to  more  than  forty  per  cent  of  the  net 
capitalization  of  all  of  the  railroads  of  the  country. 

8 


But  we  have  not  yet  a  railroad.  We  have  not  an 
acre  of  right  of  way,  nor  have  we  a  shovelful  of 
earth  turned,  nor  a  rock  blasted,  nor  a  river 
spanned,  or  a  tunnel  bored. 

So  I  repeat  that,  as  the  laborer  is  worthy  of  his 
hire,  the  men  and  the  women  of  the  land  who  have 
both  directly  and  indirectly  invested  their  savings 
in  the  railroads  of  the  country  are  entitled  not  only 
to  a  reasonable  security  for  such  savings,  but  also 
to  a  fair  return  thereon,  and  in  the  present  state  of 
things  they  are  not  getting  it.  It  is  unjust  and  it 
is  unwise  from  an  economic  view-point  to  seek  to 
compel  those  who  have  invested  their  means  in  these 
great  public  service  undertakings  to  go  without  an 
adequate  return.  In  the  long  run  and  in  a  large 
way  such  a  policy  is  certain  to  re-act  upon  other 
lines  and  ultimately  to  have  an  adverse  effect  upon 
all  of  the  country's  industries  and  upon  every  in- 
dividual. 

Last  year  the  people  of  this  country  paid  only 
about  1700,000,000  as  a  return  upon  the  tremendous 
investment  in  their  railroads ;  that  is  all  that  was 
paid  for  the  use  of  all  the  vast  machinery  of  trans- 
portation which  stretches  from  ocean  to  ocean  and 
from  the  lakes  to  the  gulf,  and  upon  which  the  pros- 
perity and  the  comfort  of  the  nation  depend.  Mark 
it :  For  these  purposes,  they  paid  only  about  |7  per 
capita,  yet  they  paid  almost  |11  per  capita  to  run 
the  federal  government  alone.  Senator  Burton  of 
Ohio,  writing  two  weeks  ago  in  the  "Saturday 
Evening  Post,"  said  that  two-thirds  of  all  of  the 
appropriations  made  by  Congress  last  year  were  on 
account  of  wars  that  have  been  or  wars  that  may 
be.    If  this  statement  be  true,  then  the  people  of  this 

9 


country  paid  last  year  less  for  the  use  of  the  capital 
invested  in  their  splendid  transportation  system 
covering  the  whole  country  than  they  paid  on  ac- 
count of  war. 

SECOND.  Another  reason  whv  rates  should  be 
advanced  is  this:  Th^  return  on  existing  capital  is 
so  loio  as  to  discourage  further  investment  in  rail- 
tcay  securities,  and,  if  this  situation  continues  the 
development  of  the  country's  transportatimi  fa<^ili- 
ties  is  likely  to  be  arrested  to  an  extent  certain  to 
hinder  the  developjuent  of  other  industries.  Ade- 
quate transportation  facilities  are  indispensable  to 
the  prosperity  of  agriculture,  manufacturing,  min- 
ing, jobbing  and  other  industries  generally.  Such 
facilities  can  be  secured  only  by  improving  and 
extending  existing  lines;  building  new  lines;  pro- 
viding larger  and  more  conveniently  arranged  ter- 
minals, warehouses,  depots  and  additional  locomo- 
tives and  cars.  These  require  vast  sums  of  money, 
and  to  provide  them  there  should  be  a  further  in- 
vestment within  the  next  few  years  of  from  five  to 
seven  billions  of  dollars.  If  the  railroads  are  to 
keep  up  with  the  growth  of  the  country  in  other 
respects,  and  if  they  are  to  afford  the  farmer,  the 
manufacturer,  the  jobber  and  the  shippers  generally 
the  facilities  which  these  industries  are  demanding, 
and  which  all  well-informed  railroad  men  concede 
should  be  afforded,  then  the  investment  of  addition- 
al capital  must  be  encouraged.  It  is  probable  that 
there  is  not  at  present  a  large  city  in  the  country 
where  the  railroad  facilities  are  sufficient  to  accom- 
modate the  handling  of  traffic  as  promptly  and  as 
cheaply  as  it  ought  to  be  handled,  and  this  is  equally 
harmful  to  the  shippers  and  to  the  railroads.     It 

10 


means  expense  to  the  former  without  benefit  to  the 
latter. 

Transportation  facilities  which  keep  pace  with, 
and  contribute  to  the  growth  of  other  industries  can 
be  secured  only  by  that  fair  treatment  which  gives 
confidence  to  those  who  are  charged  with  investing 
the  means  necessary  to  develop  such  facilities.  It  is 
idle  to  talk  of  compelling.  There  is  nothing  either 
in  law  or  in  morals  by  which  one  man  can  compel 
another  to  put  his  means  into  a  given  enterprise  for 
the  benefit  of  the  first  without  a  reasonable  return 
to  the  second.  We  must  not  forget  that,  by  reason 
of  the  events  of  the  past  few  years,  the  custodians 
of  capital  have  justly  become  cautious;  that  the 
reservoirs  of  capital,  from  which  the  vast  amount 
needed  to  make  improvements  must  be  drawn,  are 
the  banks,  the  trust  companies  and  the  insurance 
companies  of  the  country;  that  these  institutions 
are  merely  the  custodians  of  trust  funds  belonging 
to  the  millions  of  individuals  throughout  the  land, 
and  that  the  law  as  well  as  sound  business  judgment 
forbid  their  putting  these  funds  into  railroad  enter- 
prises, no  matter  what  the  need  for  additional  facili- 
ties may  be  so  long  as  existing  capital  is  insecure, 
and  the  return  thereon  inadequate. 

A  further  investment  of  from  three  to  five  billion 
dollars  is  required  to  satisfy  the  public  demands 
for  improvements,  which,  if  made,  would  not  appre- 
ciably, if  at  all,  increase  the  earnings  of  the  rail- 
roads. These  demands  cover  the  elimination  of 
grade  crossings;  more  commodious  and  more  con- 
veniently arranged  passenger  depots ;  the  substitu- 
tion of  steel  passenger  cars  in  place  of  present  equip- 
ment; more  and  better  train  service  generally,  and 

11 


many  other  minor  improvements.  It  may  be  con- 
ceded that  all  of  these  changes  are  desirable,  but 
they  would  not  materially  increase  the  earnings. 
Then,  whence  the  money?  Railroad  managers  are 
not  magicians.  Like  the  great  mass  of  men  in  other 
pursuits  they  can  but  work  in  "common  ways  with 
common  men."  If  such  improvements  are  to  be 
made,  and  railroad  men  generally,  as  well  as  the 
public,  would  be  glad  to  see  them  made,  the  expense 
must  be  met  either  by  another  large  addition  to 
capital  or  they  must  be  paid  for  out  of  net  earnings. 
If  the  expense  is  to  be  met  by  the  first  method,  the 
net  earnings  must  be  increased  sufficiently  to  pro- 
vide the  sums  adequate  to  pay  not  only  a  reasonable 
return  upon  existing  capital,  but  a  reasonable  re- 
turn upon  the  additional  capital  required.  If  such 
expense  is  to  be  met  by  the  second  method,  the  net 
earnings  must  be  correspondingly  increased  in 
order  that  there  may  be  a  sufficient  surplus  out  of 
which  the  improvements  may  be  gradually  made. 

There  appears  to  be  little  appreciation  of  the  ex- 
tent of  the  demands  made  upon  railroad  companies 
in  recent  years.  For  instance,  men  talk  freely 
about  the  substitution  of  steel  cars  in  place  of  pres- 
ent passenger  equipment,  as  if  the  matter  were  of 
no  great  consequence  from  a  financial  standpoint, 
and  members  of  congress  and  senators  make 
speeches  and  introduce  bills  to  compel  an  immediate 
change.  They  appear  to  think  that  steel  equipment 
could  be  quickly  provided  and  that  it  would  result 
in  a  great  saving  in  operating  expense,  whereas  the 
fact  is,  that  it  would  require  nearly  ten  years  for 
the  car  builders  of  the  country  to  turn  out  sufficient 
cars  to  make  the  change ;  the  expense  of  operating 

12 


would  be  considerably  greater  than  the  present  cost 
of  operation,  and  the  initial  cost  would  be  approx- 
imately six  hundred  million  dollars.  As  a  further 
illustration,  it  may  be  said,  that  there  are  upon  the 
railroads  of  the  country  more  than  350,000  highway 
crossings,  and  that  the  elimination  of  the  entire 
number  would  probably  cost  more  than  |5,000,- 
000,000.  It  may  truthfully  be  said  that  railroad 
men  generally  are  more  keenly  appreciative  of  the 
importance  of  making  the  improvements  about 
which  so  much  is  said,  but  they  have  not  yet  found 
a  way  to  paj'  out  two  dollars  where  they  receive  but 
one. 

THIRD.  Another  reason  why  the  rates  should 
be  increased  is  this :  A  substantial  increase  is  nec- 
essary to  preserve  the  economic  balance  in  the  coun- 
try generally.  While  the  rates  are  insufficient  to 
pay  a  reasonable  return  upon  the  present  invest- 
ments, not  only  are  further  investments  discour- 
aged, but  the  development  of  transportation  facili- 
ties is  arrested  with  a  consequent  disastrous  effect 
upon  all  other  industries.  There  is  also  a  serious 
disturbance  of  the  finances  of  the  country  at  large, 
for  the  finances  of  the  railroads  are  quite  as  ex- 
tensively interwoven  with  the  finances  of  the  coun- 
try generally  as  is  the  physical  system  of  tracks  and 
terminals  and  cars  with  the  several  parts  of  the 
land.  I  know  of  no  other  single  agency  in  all  the 
land  which  so  widely  and  so  promptly  returns  to 
the  pockets  of  the  people  so  large  a  proportion  of 
the  moneys  received  as  do  the  railroads. 

The  gross  earnings  at  present  are  about  |3,000,- 
000,000  a  year,  and  of  this  about  |1,5^P00,000  is 
immediately  disbursed  in  the  form  of  wages;  |600,- 

13 


000,000  to  1700,000,000  are  paid  out  for  materials 
and  supplies,  and  about  1130,000,000  is  paid  in 
taxes.  For  example,  during  the  fiscal  year  ending 
June  30,  1913,  the  three  large  systems  operating  in 
Wisconsin,  namely:  The  Chicago  and  North- 
western, the  Chicago,  Milwaukee  &  St.  Paul,  and 
the  Minneapolis,  St.  Paul  &  Sault  Ste.  Marie  had 
gross  earnings  in  the  state  of  a  little  more  than 
#57,000,000,  and  of  this  sum,  these  three  companies 
paid  out  to  the  people  of  the  state,  during  the 
same  fiscal  year,  the  sum  of  $45,000,000  in  three 
items,  namely :  for  wages,  materials  and  supplies, 
and  taxes.  It  is  not  likely  that  such  a  showing 
could  be  made  by  any  other  industry. 

What  is  true  of  the  vast  sums  paid  out  for 
wages,  materials  and  taxes  is  almost  equally  true  of 
the  remaining  §700,000,000  paid  as  interest  and  div- 
idends. Only  in  a  very  limited  sense  are  the  stocks 
and  the  bonds  the  property  of  the  few  and  the 
rich.  There  are  from  eight  to  nine  millions  of  peo- 
ple w^ho  draw  their  daily  sustenance  from  the  rail- 
roads, but  there  are  in  addition  to  these  more  than 
a  million  stockholders,  thus  adding  approximately 
three  millions  more  who  have  a  direct  interest  in 
the  properties  of  the  various  companies. 

But  the  number  who  have  a  financial  interest, 
only  slightly  less  direct,  exceeds  in  number  both  of 
the  classes  mentioned.  To  illustrate :  A  few  days 
ago  the  New  York  Life  Insurance  Company  pub- 
lished a  statement  showing  more  than  one  million 
policy  holders  and  more  than  three  hundred  mil- 
lions of  the  Company's  assets  invested  in  railroad 
bonds  and  stocks.  It  follows,  therefore,  that  from 
twelve   million    to   fifteen    million    dollars   of  the 

14 


moneys  disbursed  last  vear  in  the  form  of  interest 
and  dividends  upon  the  bonds  and  stocks  of  the  rail- 
roads, a  fairly  substantial  part  of  the  seven  hun- 
dred millions  mentioned  went  into  the  treasury  of 
a  single  life  insurance  company  for  distribution 
among  more  than  a  million  policy  holders,  includ- 
ing farmers,  mechanics  and  other  laborers,  as  well 
as  the  merchants,  manufacturers,  bankers  and  the 
like.  Were  we  to  trace  the  moneys  paid  as  interest 
and  dividends  we  would  find  a  very  large  propor- 
tion of  it  returning  to  the  pockets  of  the  thrifty  men 
and  women  residing  throughout  the  country. 

This  invisible  connection  of  vast  numbers  of  the 
people  with  the  very  financial  resources  and  ac- 
cumulations of  capital  which  they  are  wont  to  at- 
tack as  antagonistic  to  their  own  interests  is  the 
most  strange  phenomena  of  the  age.  It  suggests 
the  question,  whether  as  a  people  we  are  not  some- 
what wanting  in  the  power  of  analysis  and  in  the 
habit  of  calm  reflection.  There  are  within  five  min- 
utes' walk  of  where  we  now  sit,  in  the  bank  vaults 
of  the  city,  more  than  a  hundred  millions  of  assets. 
Next  to  the  labor  of  her  people,  this  is  the  most 
potent  force  in  the  industrial  and  commercial  life 
of  the  city.  Each  little  sum  is  without  productive 
capacity  while  it  remains  hoarded  in  individual 
hands.  On  the  other  hand,  even  the  single  dollar 
to  the  credit  of  the  baby  in  the  cradle  when  de- 
posited in  bank  and  rendered  active  in  the  product- 
ive enterprises  of  the  community  becomes  a  con- 
tributing factor  in  moving  and  expanding  the 
mighty  manufactories  which  are  the  support  and 
the  pride  of  the  city.'  So  it  is  with  the  capital  of 
the  railroads.     It  belong-s  to  the  manv.     It  is  the 

15 


capital  of  the  people  generally,  and  when  the  situa- 
tion is  rightly  understood  the  people  will  see  that 
in  attacking  the  railroads  they  are  attacking  their 
own  interests. 

It  is  well  to  take  account  of  these  things,  for 
they  help  us  to  think  straight,  and  to  comprehend 
the  great  principles  of  finance  which  lie  at  the 
foundation  of  prosperity  in  every  well-ordered 
state;  principles  which  have  endured  and  will  en- 
dure, for  "On  the  rocks  primeval,  hidden  in  the  past 
their  bases  be,  block  by  block  the  endeavoring  ages 
build  them  up  to  what  we  see."  It  must  be  clear 
that  any  policy  which  affects  the  value  of  railroad 
securities  by  reducing  the  return  thereon,  below 
what  is  reasonably  adequate,  tends  to  disturb  all  of 
the  country's  industries  and  its  entire  financial  sys- 
tem to  the  detriment  of  all  of  the  people. 


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